JoanE. Solsman

--Capital spending to increase on direct-to-consumer business, West Elm

(Updates throughout with further details from results, adds context)

NEW YORK (MarketWatch) -- Williams-Sonoma Inc.,
WSM, -1.92%
which beat its reined-in guidance with 8.1% profit growth in the fiscal fourth quarter, remained wary about results this year, after weakness in the high-end home-furnishings retailer's namesake brand held back sales growth.

The company, whose stores also include Pottery Barn and West Elm, said it would increase capital spending this year to improve the capabilities of its direct-to-consumer business and expand the scope of its West Elm brand, two of the company's brightest spots lately.

It also said that Sharon McCollam, chief operating and chief financial officer, would retire next week.

Thursday, Williams-Sonoma projected muted earnings and revenue growth this year compared with consensus. It forecast $2.37 to $2.47 a share in profit on 6% to 8% revenue growth, which includes the benefit of an extra selling week. Analysts surveyed by Thomson Reuters anticipated $2.47 in earnings and $3.91 billion in revenue, which represents about 5.1% growth.

Williams-Sonoma's earnings view for the current quarter was cautious as well: 29 cents to 32 cents versus the 33-cent consensus. The company predicted revenue of $800 million to $820 million, bracketing the consensus $805 million expectation.

The company left little room for margin improvement in the new year. It predicted operating margin adjusted to exclude one-time items would be 10% to 10.4%. In 2011, operating margin rose to 10.3% from 9.2%.

A contributing factor to the restrained margin is a plan to heighten capital investment. The company expects capital spending in 2012 to be $200 million to $220 million, compared with $130 million in 2011. The spending will focus on e-commerce, technology platform and shipping--which will all benefit its direct-to-consumer business--as well as expansion of its high-growth West Elm chain. Williams-Sonoma will also be investing in "high-profile store remodels."

The sales-growth disparity widened between the namesake brand and West Elm in the latest period, which contributed to Williams-Sonoma's weakest same-store sales increase--1.1%--since the metric returned to growth in the second quarter of 2009.

For the namesake brand, comparable-brand sales--which include same-store and direct-to-consumer sales--fell 2.3%, the only quarterly decline of the year. Meanwhile, comparable-brand revenue at West Elm jumped 35%, its best growth of the year, on top of a 29% increase a year earlier.

Sales at namesake stores have been lagging other brands in recent quarters, which some attribute to execution fumbles but others say reflect the namesake brand's resilience through the downturn, which gave it less room for improvement in recovery.

Overall for the quarter ended Jan. 29, Williams-Sonoma reported a profit of $122.6 million, or $1.17 a share, up from $113.4 million, or $1.05, a year earlier. Excluding items such as a writedown and early lease-termination charges, earnings rose to $1.17 from $1.08.

Revenue rose 6.1% to $1.27 billion.

In January, the company lowered its earnings guidance to $1.10 to $1.15 a share and predicted revenue of $1.24 billion to $1.26 billion. Chief Executive Laura Alber had said in January when the company lowered its outlook that sales thus far in the new year had been encouraging.

Total comparable brand revenue was up 6.6%, better than predicted in January.

In the latest period, adjusted operating margin slid slightly despite a deeper drop in gross margin to 41.3% from 42.3%. Gross margin suffered from heightened promotions, including those on shipping fees, but Williams-Sonoma made up some of the lost ground by keeping overhead-cost growth in check.

Williams-Sonoma said that with McCollam's retirement, Julie Whalen would be acting chief financial officer. She is currently senior vice president, corporate controller and treasurer.

Shares were down 2.2% at $37 premarket. Shares have declined 1.7% while the wider market has risen, although the stock hit its highest level ever in May 2011. It's off 17% from that high.

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